Cautiously Optimistic…

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Markets steadied somewhat last week, with the Dow Jones up 0.97%, the S&P 500 rising 1.04% and the NASDAQ eking out a 0.45% gain. The MCSI Emerging Markets Index performed in the most impressive fashion, jumping 4.44%.

This week’s Bull Market Alert is all about gradually increasing your exposure to the U.S. market, after months of pulling in your horns.

So while it’s too soon to sound an “all clear,” I still am going to use the next few weeks to load up on some oversold positions that I expect to rally strongly between now and the end of the year.

My working investment thesis has been that the recent sell-off has been more like 2011 than 2008. After all, the U.S. economy is growing. The yield curve is not inverted, and we weren’t exactly at the height of market euphoria — a typical sign of a top in the market. Finally, in a month, we are entering the strongest time of the year.

You’ve already profited several times this year by taking positions in the Ultra Nasdaq Biotechnology ProShares (BIB).

Here’s why I think it’s a good time to take another shot at this leveraged bet on biotech.

First, large-cap biotech still trades at lower forward price-to-earnings (P/E) multiples — and with higher growth rates — than the S&P 500. And the recent correction brought biotech stock valuations down substantially. For example, Gilead (GILD) — 8.39% of BIB — now trades at just 8.47 times its estimated 2015 earnings.

Second, deal making is driving up biotech stock prices as smaller biotech firms get gobbled up by big pharma. During January-August 2015, the total value of biotech mergers and acquisitions (M&A) almost doubled to $94.27 billion from the year-ago period, while the number of deals zoomed from 565 to 655 compared to the same period last year.

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Finally, few sectors have been hit harder than biotech in the past two months. After being one of the top-performing sectors in the U.S. market in the recent bull run, the combination of recent threats by presidential candidate Hillary Clinton and the general market sell-off has hammered the sector unfairly. The 16% fall in the Nasdaq biotech index ended a streak of 10 straight quarters of gains, making it, in my view, ripe for a soaring bounce.

So buy back Ultra Nasdaq Biotechnology ProShares (BIB) at market today. Because of current market volatility, I’m waiting to put a stop on this one for now. Options recommendations are forthcoming as well.

Portfolio Update

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) fell 2.00% last week. Zacks Investment Research recently issued a high “Growth Style” score for ULTA. This metric is based on both company financials and prospects for future growth, taking the Balance Sheet, Cash Flow Statement and Income Statement into account. ULTA is a BUY.

Alaska Air (ALK) dipped 1.78%. ALK reported last Friday an increase in its “revenue passenger miles” (RPM) by 10% and in its “available seat miles” (ASM) by 10.3% during September. RPM is a metric that measures the number of paying travelers against the number of miles traveled, and ASM measures capacity by looking at available seats and the number of miles on any given flight. Gains in both signify a positive outlook for ALK’s future fundamentals. ALK will report earnings on Oct. 22, before markets open. ALK is a BUY.

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Nicholas Vardy




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What can you say about a third quarter that witnessed the worst decline in the major domestic averages since 2011? You call that a downright ugly Q3. Just about everywhere you looked among domestic and global equities, it was easy to see a whole lot of red. The table below of the top 10 domestic equity funds by year-to-date performance shows that even the best funds in 2015 saw a lot of bloodletting in Q3.

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